Trump tariffs auto, but spares Canada on reciprocal tariffs

U.S. President Donald Trump signed an executive order yesterday imposing a 25% tariff on all cars manufactured outside the United States, but Canada has avoided reciprocal tariffs for now.

Long-term, the U.S. tariffs on foreign-manufactured vehicles could have a knock-on effect on Canada’s auto insurance rates, Canada’s auto insurers warn.

A White House Fact Sheet says the 25% tariff, effective today, “will be applied to imported passenger vehicles (sedans, SUVs, crossovers, minivans, cargo vans) and light trucks, as well as key automobile parts (engines, transmissions, powertrain parts, and electrical components), with processes to expand tariffs on additional parts if necessary.”

Automobiles under the United States-Mexico-Canada Agreement (USMCA) will remain tariff-free until U.S. Customs and Border Protection “establishes a process to apply tariffs to their non-U.S. content,” a White House fact sheet says.

In a day the U.S. president dubbed “Liberation Day,” Trump also announced yesterday his plan for reciprocal tariffs on goods imported from other countries. His executive order implements a 10% baseline reciprocal tariff on all countries, and expands tariff amounts on 75 different countries, based on where the Trump administration deems the largest trade deficits to be.

Canada and Mexico are not listed among the 75 countries. A White House Fact Sheet on the reciprocal tariffs says the 10% baseline reciprocal tariff does not apply to Canada or Mexico.

“For Canada and Mexico, the existing fentanyl/migration IEEPA [International Emergency Economic Powers Act] orders remain in effect, and are unaffected by this order,” the White House Fact Sheet reads. “This means USMCA compliant goods will continue to see a 0% tariff, non-USMCA compliant goods will see a 25% tariff, and non-USMCA compliant energy and potash will see a 10% tariff.

“In the event the existing fentanyl/migration IEEPA orders are terminated, USMCA compliant goods would continue to receive preferential treatment, while non-USMCA compliant goods would be subject to a 12% reciprocal tariff, effective now, in addition to an existing 25% tariff on steel and aluminum exports, which took effect March 12.”

In other news: Why insurers need to rethink traditional approaches

In a wholly symbolic move, on the same day Trump announced his reciprocal tariffs, the U.S. Senate, based on four Republican senators siding with the Democrats, voted to rescind the emergency fentanyl order on which the Canadian tariffs are based. However, the U.S. House of Representatives has already moved to prevent a floor vote in the House to end the types of national emergencies upon which the Trump tariffs are based.

In response to the U.S. moving ahead with the 25% auto tariff plan for non-USMCA exempt vehicles, Canadian Prime Minister Mark Carney announced a retaliatory 25% tariff on U.S.-made vehicles that do not comply with that trade agreement.

The CBC quotes Carney as calling the U.S. tariffs “unjustified, unwarranted and, in our judgment, misguided,” adding Canada must hit back with “carefully calibrated and targeted countermeasures.”

For now, Canada’s action simply matches the tariff levied by the U.S. but the Prime Minister did say Canada’s government expects further tariffs on other Canadian goods, including lumber, pharmaceuticals and semiconductors, because the White House has previously claimed those products should face tariffs in the interest of “national defence,” the CBC adds.

Insurers’ concerns

Canada’s property and casualty insurance industry has previously warned the additional cost of repairing vehicles would likely lead to increased claims costs and, thus, higher auto insurance premiums.

“Tariffs will have an impact on insurance as they add additional costs to the goods used in replacing and repairing homes, cars, and businesses,” Insurance Bureau of Canada told Canadian Underwriter in early March. “Our initial analysis indicates tariffs could impact all lines of P&C insurance. Auto insurance is likely to be more impacted due to the highly interconnected nature of Canadian and U.S. auto and auto parts supply chains.”

In quarterly statements, the chief executives of Canadian insurers Intact Insurance and Aviva Canada — which collectively account for about one-quarter of Canada’s total P&C insurance market share — announced they were reviewing their supply chains to measure the impact of proposed tariffs on their auto repair and replacement costs.   

Editor’s Note: This is a developing story and more information will be provided as it becomes available.